The yen fell to a new 24-year low after the Bank of Japan pledged to continue its ultra-loose monetary policy, but quickly reversed, sparking speculation that the Japanese authorities would intervene.
The BoJ’s move exacerbated a global divergence in yields after the Federal Reserve implemented a third consecutive 0.75 percentage point hike on Wednesday. Following the announcement, the Japanese currency fell to ¥145.36 against the dollar, but immediately fell back to ¥143.55 within three minutes.
The BoJ kept overnight interest rates at minus 0.1% on Thursday. He said he would make daily purchases of 10-year bonds at a yield of 0.25%, showing no willingness to let the bonds trade in a wider band.
Core consumer price inflation in Japan, which excludes volatile food prices, hit 2.8% in August, rising at the fastest rate in nearly eight years due to soaring commodity prices and the weakness of the yen.
But the BoJ has long maintained that underlying demand in the Japanese economy remains weak and that its monetary policy is not targeted at the exchange rate.
It expects with more confidence than its counterparts in Europe and the United States that the current surge in inflation will be temporary and that it will have to continue to support the economy with monetary easing measures.
“There remain extremely high uncertainties for the Japanese economy, including the development of Covid-19 at home and abroad and its impact, the development of the situation around Ukraine and the development of commodity prices and economic activity and prices abroad,” the BoJ said.
The policy meeting came after BoJ officials phoned forex traders last week to inquire about market conditions during a so-called rate check, illustrating the government’s sense of alarm over the sharp fall of the yen against the dollar.
In the past, these audits preceded an intervention by the Ministry of Finance to control the exchange rate.